Is it standard practice for searchers to sign an LOI and then go look for the money?

intermediary profile

May 23, 2025

by an intermediary in Oshkosh, WI, USA

I plan on selling my promotional products ecommerce business in the near future and have been reading a number of the posts on Searcher. It seems that a number of people don't have the money lined up before they sign an LOI. If this is the case, wonder how often a deal falls through because the funds can't be raised. And as a seller, how can I be sure there is money behind the LOI and it's not a waste of time?
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commentor profile
Reply by an intermediary
from The University of Michigan in Bonita Springs, FL, USA
All too often. Sellers and their brokers do not want to tie up a deal while a buyer is searching for funds -- especially now when there are so many well-funded buyers in the market. My advice for sellers and brokers is to ALWAYS demand proof of funds prior to engaging a buyer. Time is the one commodity we can never replace. Never waste it with an unprepared buyer. And Searchfunders, understand for most sellers, this is a transaction many sellers have been waiting for their entire careers. It is their retirement plan, a major life-changing event, etc. and by holding up a deal while you desperately attempt to fund the deal is unfair. Trust and respect are such a huge part of executing a deal. Be honest with your funding plan with the seller and/or broker up front so they can make an informed decision. If they like and trust you, they may be willing to wait for you.
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Reply by an intermediary
from Syracuse University in Leominster, MA, USA
This does happen. As a broker, when I first talk to a buyer, one of the things we discuss is their financing plan for the business purchase. I want to know that they have a plan to raise the money, I want to know who they plan to approach if they need to raise the money, and I want to know that they have at least 5% of the price in their own bank account / relatives/ friends committed already. If the seller and I are not comfortable with the story, their LOI might get put on the shelf - or we might accept but not take the business off of the market while they try to raise the money. In the LOI there will be a deadline (usually###-###-#### days) to raise the financing or get a bank commitment letter. I also want some escrow money with the offer and more when the APA is signed. I can't always get it if it is a PE deal, but that depends on who they are.
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